Optimizing Regional Labour Market Policy with a User-Friendly Computer Interface

A decision aid for optimizing regional labour market policy with a user-friendly computer interface is developed. The distribution of subsidies among 271 German regions is considered as an optimization problem with three targets: (1) equalization of regional unemployment rates, (2) minimization of unemployment, and (3) maximization of GDP, subject to budget constraints and some administrative restrictions. The analysis of a three-year period reveals that the results obtained for 6 Bio EUR could be attained for only 241 Mio EUR (=4% of the actual budget). Such a bad implementation of active labour market policies can be the cause of their low efficiency often misinterpreted as their uselessness. Among other things, it is shows that tax returns from the additional GDP due to jobs subsidized can transform regional policy into a profitable governmental enterprise.